A country may only create a new faction if the respective country rule is enabled. At the start of the game the three existing faction leaders Germany, the United Kingdom and the Soviet Union, along with the United States, have this rule. Other nations gain the capability to form their own factions through their national focus trees.
Joining a faction is again limited by country rules. Depending on ideology and national spirits, countries need various amounts of world tension before they can join or ask someone to join a faction.

Faction members share military access with one another and see accurate intelligence in the diplomacy screen of their allies.

Factions rules can amend some country rules such as the ability to justify war goals on other countries of the same ideology or which actions are allowed in peace conferences.

Faction members can choose to leave a faction, but this causes a significant relations modifier faction traitor (-75 relations). A faction member cannot leave while fighting a war on the side of other members. The faction leader may kick another country out even while at war or disband the faction altogether if it contains no other members than themselves and their subjects.
If the faction leader ceases to exist, the largest remaining member takes over.

If a country fights alongside major allies, it will only surrender once all of the majors in the faction have capitulated. For instance if Poland joined the Allies, it will not surrender before the United Kingdom and France capitulate, and will instead continue on as a government-in-exile.

A faction leader in HOI4 is the leader of a faction. The default faction leaders in-game are the United Kingdom leading the Allies, German Reich leading the Axis and the Soviet Union leading the Comintern. They are usually joined by Japan leading the Greater East Asian Co-Prosperity Sphere, and China leading the Chinese United Front.

If the faction leader ceases to exist, the largest remaining member takes over.

The Greater East Asia Co-Prosperity Sphere (formerly known as Daitoa Kyoeiken) is a faction formed by Japan after following the focuses Purge the Kodoha Faction and Greater East Asia Co-Prosperity Sphere. It's formed with the objective of creating a Pan-Asian bloc led by Japan.

All countries (except the British Raj with Together for Victory) can acquire the ability to create factions through their national focus tree. In general, these have no default name, with the player choosing a name when inviting the first member. Several specific factions, inspired by counterfactual history, do have pre-set names, however, and are listed below.

The Little Entente is a faction that can be formed by France with the 'Strengthen the Little Entente'National Focus. When this faction is formed, France won't join the Allies. Based on the pre-WW2 alliance with the objective of preventing Hungary rearming and/or a Habsburg restoration in Austria.

Active with Poland's unique focus tree available through the free DLC with the 'The Between the Seas Concept'. It will be formed by Poland and can be expanded to include the Baltic states. The faction has bases on the historical idea of the Intermarium, in Polish Międzymorze, a plan created by politician Józef Piłsudski in which the Eastern European countries that broke free from Russian control would create a federation between the Baltic and Black seas. In the game, however, the Międzymorze is only a military alliance.

If Canada chooses to become independent from the United Kingdom and become fascist it can either join the Axis or support fascism in Mexico and create the Northern Sovereignty Coalition. Doing this can give a favorable outcome in a war with the United States.

An independent, communist South Africa can form this faction. It has no default members and will have only South Africa at the game start, however, they can conquer colonies from Portugal, Belgium and the United Kingdom to create puppets.

If Germany chooses to oppose Hitler and reestablish democratic elections, it will eventually create the Central European Alliance in opposition to the Soviets and eventually offer membership to a number of non-fascist, non-communist countries across Europe.

If the United Kingdom decides to decolonize but is at war alongside its former colonies against a common enemy, then one of its colonies (priority given to Canada) may create this faction and possibly invite former colonies to it.

Communist France can form this alliance with the focus of the same name if there is no Democratic or Communist faction in the world, inviting every democratic or communist country bordering them if they are not in factions.